A2 Milk (ASX:A2M) share price awaits judgement day as earnings draw near

Half year results are fast approaching for A2 Milk, what can we expect…

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The February earnings season is fast approaching, which means results will soon be feeding through the ASX. One company that will draw plenty of attention with its earnings is A2 Milk Company Ltd (ASX: A2M). This follows a 26% fall in the A2 Milk share price since releasing its FY21 full-year results on 26 August 2021.

For investors, Monday 21 February 2022 will serve as an important day. On this day the infant formula company is expected to reveal its results for the first half of FY2022.

After enduring a year and a half of disastrous performance, shareholders will be hoping the company reports a better result. Otherwise, there could be more pain ahead for this unloved ASX share.

Having said that, let’s dive into an earnings preview of A2 Milk and its share price.

What to look for in the upcoming earnings?

The once darling of the ASX share market has been plagued with issues involving its distribution channels and inventory in recent times. As a result, revenue and earnings evaporated during last year.

To illustrate this, the infant formula company posted revenue of NZ$1.731 billion in FY20. Then China’s demand softened and the company was stuck with excessive inventory. In turn, A2 Milk recorded a significantly reduced revenue of NZ$1.205 billion in FY21.

Similarly, earnings were crushed, tumbling nearly 80% from NZ$388.17 million to NZ$80.66 million. For this reason, investors will likely be seeking — at a minimum — a reduction to the impact on revenue and profits in the upcoming half-year result.

At this stage, analysts are expecting net profits after tax (NPAT) of NZ$60 million for the half-year. Unfortunately, this would suggest another 50% reduction on the NZ$120 million of NPAT reported in 1HFY21.

What else is there to consider for the A2 Milk share price?

In an interview with Livewire, Jun Bei Liu of Tribeca named the A2 Milk share price as a buy. While the company has still been trending towards the downside, the portfolio manager believes it could be a turnaround story in the making.

A highlight that Bei Liu mentioned for A2 Milk is that it remains debt-free. Simultaneously, the company laid claim to NZ$875 million of cash and cash equivalents at 30 June 2021. In addition, Jun Bei Liu likes the great brand that A2 Milk has built.

Taking all of this into consideration, the fund manager believes the A2 Milk share price could “really recover” in the next 12 months. Currently, A2 Milk shares are fetching a price of $5.11 — giving the company a valuation of $3.8 billion.

Should you invest $1,000 in A2 Milk Company right now?

Before you consider A2 Milk Company, you'll want to hear this.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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